Mobilizing innovation:
Sugar Protocol countries adapting to new market realities1
Johannes Roseboom
Innovation Policy Consultancy
Bastion 26
4351 BG Veere
The Netherlands
Tel: (31) 118-594274
E-mail: j.roseboom@planet.nl
Abstract
The EU Sugar Reform has negative consequences for the sugar industries in Sugar Protocol
(SP) countries as their export revenues will decline sharply. In order to adapt to new market
realities the EU is offering the SP countries a significant development assistance package (€
1.2 billion) to restructure their industries as well as various other forms of assistance. One of
them is a five-year ACP sugar research programme to be funded by the European
Development Fund. This programme aims to improve the overall competitiveness of the sugar
industry in ACP countries (and in particular in the SP countries among them) in order to
survive in a less-protected global sugar market. At the same time, the Everything-But-Arms
(EBA) agreement has created new opportunities for sugar-producing EBA countries to export
to the EU sugar market.
Another major driver for innovation in sugar industry is the use of sugarcane or sugarcane
waste as a source of renewable energy. The latter option (using sugarcane waste for energy
production) is the better bet for SP countries in the short run, but in the long run energy
production may become the core business of the sugarcane industry and sugar just a byproduct. It will depend, among other things, on the oil price, the efficiency with which
sugarcane can be produced and transformed into energy, continued access to preferential
markets for sugar, and subsidies for renewable energy.
The impact of the ACP research programme on the competitiveness of the sugar industry will
only materialize a considerably number of years down the line. In the case of sugarcane
breeding, for example, it may take as long as 15 years before a new variety will be released
commercially. This will be too late for high-cost producers in SP countries to survive. The
better solution for them is to focus on how they can catch up faster on existing technologies –
by planting new sugarcane varieties, improving sugar fields and agronomic practices, and
benchmarking the performance of their sugar mills in order to identify best practices.
1
Published in Development Economics between Markets and Institutions: Incentives for growth, food security
and sustainable use of the environment, edited by Erwin Bulte and Ruerd Ruben. Wageningen: Wageningen
Academic Publishers, 2007.
1. Introduction
In recent years, analysis of the impact of the EU Sugar Reform on third countries (and in
particular the Sugar Protocol countries) has been dominated by trade models. However, now
that the key parameters of the EU Sugar Reform have been set and are being implemented, the
policy focus has shifted to how these countries can adapt to new market realities. The EU
Action Plan on Accompanying Measures for Sugar Protocol Countries (EC January 2005)
with a total budget of approximately € 1.2 billion for eight years is playing a lead role in this
process. But also various other instruments are being mobilized to facilitate the adaptation
process, including an ACP Sugarcane Research and Innovation Programme to be funded by
the European Development Fund (EDF). A budget of € 13 million has been set aside for this
(still-to-be-approved) five-year programme.2
This paper aims to provide an overview of the strategic policy choices that the Sugar Protocol
countries are confronted with and focus on the question how innovation, both technically and
institutionally, could facilitate their adaptation strategies. First, however, an overview of the
broader context will be sketched in order to better understand the drivers for innovation.
2. The Global Sugar Market and the EU Sugar Reform
Sugar is an important ingredient in people’s diet the world over and sugar production (both
from sugarcane and sugar beet) is widely distributed. During 2005/2006 season, total world
sugar production reached nearly 150 million ton – of which 76% originated from sugarcane
and 24% from sugar beet. Since the 1980s, all growth in sugar production (on average 2% per
year) is coming from sugarcane, while sugar production based on sugar beet has been stagnant
or contracting. Currently, 69% of the world’s sugar is consumed in the country of origin
whilst the balance is traded on world markets. This makes it one of the more intensively
traded agricultural products in the world.
What makes sugar in particular a ‘difficult’ commodity is that sugar markets have a long
history (often going back to colonial times) of being heavily regulated by governments the
world over. Two such regulations are:
1. The EU Sugar Regime, which regulates the internal production, import and export of
sugar of the European Union by means of fixed, national production quota, import
restrictions, and an internal intervention price that is substantially higher than the
world market price; and
2. The ACP/EU Sugar Protocol, signed by the EU and some 18 ACP countries,3
regulates that these countries have the right to export a certain quota of sugar (i.e.,
approximately 1.3 million ton in total) to the EU at a guaranteed price (related to the
price paid to European farmers) and on a duty-free basis. While at the time of signing
the treaty (1975) the internal EU price was close to (or even below) the world market
price, in most of the years after 1975 the EU sugar price exceeded the world market
price quite significantly. In recent years, for example, the EU sugar price has been
2
This paper is based on the feasibility study for this programme (Roseboom, Kooistra and Pabon [May 2007]). I
would like to thank my colleagues Taco Kooistra and Claudia Pabon for their input into this study.
3
Barbados, Belize, Congo (Republic of), Cote d’Ivoire, Fiji, Guyana, Jamaica, Kenya, Madagascar, Malawi,
Mauritius, Mozambique, St. Kitts & Nevis, Swaziland, Tanzania, Trinidad, Zambia, and Zimbabwe. Surinam
and Uganda originally also were Sugar Protocol countries, but stopped exporting to the EU many years ago.
Their quotas have been redistributed.
roughly three times the world market price. In particular for countries that hold large
Sugar Protocol (SP) quotas (such as Mauritius, Fiji, Jamaica, and Swaziland, which
jointly hold 80% of the SP quota) this Treaty has been very profitable. Some SP
countries, for example, import sugar for own consumption in order to fill their SP
quota. In addition, further market access is given by the Agreement on Special
Preferential Sugar (SPS), granting temporary import quotas for some 17 ACP
countries (some 200,000 ton in 2002/03).
Despite the fact that at the pre-reform price level the EU produced more than enough sugar
(19-20 million ton) to cover internal consumption (16-17 million ton), the SP meant that it
had to import the agreed quota and at the same time dump a surplus of sugar (4.7 million ton)
on the world market at high cost. This practice has been under criticism as unfair to
developing countries for a long time. It is one of the classic examples of the No Aid but Trade
Campaign. However, the two major reasons that triggered the EU Sugar Reform were:
1. A successful complaint by Australia, Brazil, and Thailand (three major sugar
exporters) at the WTO that some of the EU sugar export practices are in conflict with
international trade agreements. These agreements have placed explicit limits on the
volume of subsidized sugar export by the EU; and.
2. The Everything-But-Arms (EBA) agreement, which gives the poorest countries in the
world free access to the EU market, including the EU sugar market for which there is a
special transitional regime. Sugar import quota and levies for EBA countries exporting
to the EU are to be phased out by 2009. In contrast to the SP countries, no import
quota restrictions will apply to the EBA countries in the future. Given the high EU
sugar price, the EU sugar market feared to be swamped by sugar from EBA countries
after 2009. Studies differ in terms of the magnitude of the immediate supply response
by the EBA countries, but a major supply response in the long run in the case of no
price adjustment is the most likely scenario upon which to base policy decisions.
In response to these emerging problems, the EU decided to reform its sugar policy drastically
and reduce the internal EU price for sugar with 36% over the period 2006 to 2009. The
expected outcome of this reform is that the European sugar production will contract sharply as
high-cost producers will stop producing and hand in their quota. Their quota will not be
redistributed to low-cost producers in other European countries. All-in-all, it is hoped that this
reduction in production (in combination with an increase in import due to the EBA
agreement) will be sufficient to reduce subsidized EU sugar export to acceptable levels under
WTO agreements (EC June 2005).
The reduction of the internal EU price for white sugar with 36% will also affect the EU sugar
import from SP countries. The quotas as such remain untouched (and unused quotas can be
redistributed), but the price paid for sugar will decline significantly. Despite the sharp price
reduction, the EU internal sugar price will still be double the world market price, and hence
will remain an interesting export market for most SP countries. Nevertheless, the reduction in
revenues requires that they adjust and streamline their sugar sectors significantly.
Oxfam, one of the more vocal players in the EU Sugar Reform debate, proposed a reduction
of the EU sugar production quota with 25% rather than a reduction in the EU sugar price
(Oxfam 2002). In that way the SP countries (as well as the EBA countries) could continue to
benefit from a high EU sugar price. However, the EU opted to induce internal quota
reductions indirectly through a major price reduction. In that way high-cost sugar producers in
Europe are expected to give up their quota first and new sugar imports from sugar-exporting
EBA countries will be dampened.
While most parties involved seem to accept the price reduction as inevitable in order to
rationalize the global sugar market, the EU is under criticism because of the short time period
within which the price reduction will take place (i.e., four years) and the limited amount of
adjustment funding made available for the SP countries. At the same time, sugar-exporting
developing countries that fall under the EBA agreement may increase their export to the EU
market in the coming years as import restrictions (quota and import tariff) will be gradually
lifted. At the same time, however, they are also confronted with the lower EU sugar price due
to the EU Sugar Reform. Hence the supply-response by these countries will be more limited
than in a scenario without an EU sugar price reduction. In the latter instance, some studies
predict an additional 3 million ton of sugar entering the EU by 2010, while with the EU price
reduction the EU sugar import from EBA countries is estimated in the range of 0.2-0.9 million
ton of sugar, depending on the assumed substitutability between European sugar and sugar
from EBA countries (van Berkum et al. 2005).
While the trade models show that the countries that formally complained about the EU sugar
export practices (Australia, Brazil and Thailand) hardly gain from the EU Sugar Reform, it is
clear that the SP countries will be big net losers of the EU Sugar Reform. They will see their
export revenues from sugar decline with some 36% (assuming no reduction in the volume of
export). On an annual basis this will be a loss of some € 245 million in export revenues for the
SP quota (1.3 million ton) and some € 36 million for the SPS quota (0.2 million ton). At the
same time, the EBA countries will gain, but substantially less than under a scenario of no
price reduction.
In the following chapters, we will have a closer look at the SP countries and their options to
respond to this drastic reduction in income.
3. Some Key Characteristics of the Sugar Protocol Countries
In terms of sugarcane production, the 18 SP countries represent only a very small share (3%)
of the world-wide sugarcane production (Table 1). The real big producers in the world are
Brazil and India, which together are good for half of the world sugarcane production. Other
important producers are China, Thailand, Pakistan, Mexico, Colombia, Australia, USA,
Indonesia, Cuba, South Africa and the Philippines (all producing more than 25 million ton of
sugarcane per year). Most sugarcane is transformed into sugar, but some is also used to
produce alcohol and (increasingly) ethanol as well as many other products.
Table 1: Worldwide Sugarcane Production
Sugarcane production (20012005 average)
(million ton) (percentage)
Sugar Protocol countries (18)
39.4
3.0
Brazil
388.9
29.7
India
270.0
20.6
Other countries (98)
610.7
46.6
Total (118)
1,309.0
100.0
Source: FAO production statistics, downloaded April 2006.
The cost price of sugar varies greatly across the various sugar exporting countries (Figure 1),
indicating that the reduction of the EU sugar price (from roughly three times to two times the
world market price) will affect some SP countries a lot harder than others. Even at the high
pre-reform price level, the sugar industries in several Caribbean countries were already
making losses (Barbados, St Kitts & Nevis, and Trinidad & Tobago). For these countries
adjustment to the lower price level will be difficult, if not impossible. St Kitts & Nevis and
Trinidad & Tobago, for example, have decided to stop producing sugar. Barbados is in the
same league, but wants to transform its industry from producing sugar to producing energy.
Jamaica stands out as the country for which the dice could go either way – either the industry
is being rationalized and modernized significantly and will survive or it has to close down.
Explanations for the high cost of sugar production in the Caribbean are: (a) a lack of
economies of scale; (b) a high cost environment (relatively expensive labour and land); (c)
poor management due to government ownership; and (d) lack of capital to renew plants and
improve sugar fields. The sugar industries in these countries have already been in decline for
some time (as reflected by declining trends in production and yields) and the EU Sugar
Reform just gives the final blow to an already weak industry.
Figure 1: Sugar Cost Price Comparison
Source: Garside et al (2005)
Factors apart from the sugar cost price that matter in terms of understanding the vulnerability
of SP countries as a consequence of the current EU Sugar Reform are:
1. The relative dependence of the sugar industry in SP countries on the EU market. Table
2 characterizes the SP countries on the basis of two variables, namely the sugar export
as a percentage of sugar production plus import and the share of the EU in the
country’s sugar export. Countries with sugar industries located in the lower, right-hand
corner are the ones most affected by the EU price reduction. Interestingly enough,
some exporters are big importers themselves. We also identified the SP countries that
fall under the EBA agreement and hence will benefit from no longer being bound by
EU import quota after 2009; and
2. The relative size of the sugar industry in the overall economy (in terms of share in
GDP and employment) and in terms of export earnings. In four SP countries (Fiji,
Guyana, Mauritius, and Swaziland), the sugar industry represents more than 5% of
GDP and in six SP countries (as above plus Belize and St Kitts & Nevis) sugar export
earning exceed more than 10% of total export earnings. Hence sharp reductions in
sugar earnings in these countries can easily lead to macro-economic instability. In
addition, social and environmental concerns play a major role in these countries as
well.
Table 2: Dependency of the Sugar Industries in Sugar Protocol Countries on Export to
the European Union
0-25%
25-75%
Share EU in
country’s sugar
export
75-100%
0-25%
Congo, DR
Mozambique
Zambia
Cote d’Ivoire
Zimbabwe
(Sugar Export) / (Sugar Production + Import)
25-75%
75-100%
Belize
Malawi
St Kitts & Nevis
Swaziland
Jamaica*
Trinidad & Tobago*
Fiji
Guyana
Kenya*
Barbados
Madagascar*
Mauritius
Tanzania
Note: Countries in italics also fall under the EBA agreement and hence will after 2009 no longer be constrained
in their sugar export to the EU by EU import quota.
* Major sugar importers.
While the sugar price reduction by the EU is looming as a big threat to at least some of the SP
countries, at the same time new opportunities are emerging for the sugarcane industry in the
form of creating additional value by producing bio-ethanol and electricity out of sugarcane
waste. Many of these energy generating activities have become profitable in recent years due
to a high oil price as well as technological development. This opportunity is in particular
attractive for SP countries that are struggling with high energy import bills. In addition, there
is a rapidly growing market for bio-ethanol due to the renewable energy policies of the EU
and the USA.
4. EU Policy Measures to Accommodate the EU Sugar Reform
In recognition of the socio-economic consequences of the EU Sugar Reform on SP countries,
the European Commission has promised a package of accompanying measures to facilitate the
adaptation of these countries to a new market situation. This package was first presented in
January 2005 under the title ‘Action Plan on Accompanying Measures for Sugar Protocol
Countries Affected by the Reform of the EU Sugar Regime’ (EC January 2005).
Considering the differences between the SP countries, in terms of the intensity of the impact
of the reform as well as possible responses, the Action Plan offers a broad range of support
options, to be tailored to each situation. It includes both trade measures and development
assistance to help the SP countries to adapt. Favourable trade measures are expected to
emerge from the current round negotiations within the WTO as well as from the bilateral
negotiations of the EU with the ACP countries on Economic Partnership Agreements.
Although these trade measures are important, in this paper we will focus on the second
component of the Action Plan, namely the package of development assistance that the EU has
offered to the SP countries for the period 2006-2013 in order to adapt to the new market
situation. The total budget envelope for this assistance runs up to approximately € 1.2 billion.
The Action Plan argues that the development assistance can be provided mainly along three
different axes: (1) Enhancing the competitiveness of the sugar sector; (2) Promoting the
diversification of sugar-dependent areas; and (3) Addressing broader adaptation needs, such
as employment and social services, environmental impact, and macro-economic stability. A
positive assessment of the viability of at least part of the sugar industry is an essential
prerequisite for directing EC support towards enhancing competitiveness. If not, priority
should be given to measures along the other two axes. The Action Plan discusses various
possible measures along each of the three axes, but leaves the actual selection of the required
measures to each of the SP countries.
To get access to the Action Plan funding, the 18 SP countries have each been requested to
develop a multi-annual, comprehensive adaptation strategy in close consultation with all the
stakeholders in the sugar industry. Although an important first step in shaping up the
development assistance package under the Action Plan, the process took place under a cloud
of political friction between the EU and the SP countries. Accepting the EU Action Plan
basically meant accepting the EU Sugar Reform. By mid-2006, however, 13 of the 18 SP
countries had developed and submitted to the EC a national adaptation strategy for their sugar
sector. However, the quality of these national adaptation strategies differs greatly and has
often been negatively affected by an atmosphere of animosity and the idea of trying to
squeeze as much assistance out of the EU as possible. A problem is that many of the
submitted strategies do not really prioritize the required actions (they want to do everything
under the sun), nor indicate how they will be financed and implemented. The total estimated
costs of the national adaptation strategies are many times higher than the available EU budget.
In many instances it is unclear how the full strategy will be financed, taking into account the
different possible funding sources. This basically disqualifies many of the strategies as
effective planning tools. Nevertheless, the EC has accepted the national adaptation strategies
as a starting point and has selected in each country key areas on which it will focus its
assistance. What will happen with those parts of the strategy that do not receive EU funding is
often unclear or highly insecure.
Despite the overwhelming emphasis on improving the competitiveness of the sugar sector,
investment in sugar research features only in a few of the strategies in a significant way.
Moreover, in selecting priority areas for EC support this opportunity of supporting
competitiveness further disappears into the background and is left to the industry to take care
of. This is rather unfortunate, particularly in upcoming sugar producing countries that still
lack any significant sugar research capacity of their own.
The three most common themes across the national adaptation strategies put forward by the
SP countries are: (1) Increased productivity at both field and factory level; (2) Diversification
into ethanol and electricity production (which will require major capital investments); and (3)
Social measures to support people that will loose their job due to the restructuring of the sugar
industry. Interestingly enough, many SP countries (in particular EBA countries) are optimistic
about their future opportunities in the sugar industry and aim to expand production. The
strategies of those countries usually also include further investment in infrastructure
(irrigation, roads, railways, etc.) and opening up of new land for sugar production.
Enhancing the overall productivity of the sugar industry stands out as an essential requirement
for the SP countries to stay in business and continue to benefit from a substantially less
attractive, but still significant preferential trade agreement with the European Union (the new
EU sugar price will still be roughly double the world market sugar price). In the following
two sections of this paper, we will first look at the research and innovation capacity in place
in SP countries (chapter 5) and subsequently at the contours of a sugar research and
innovation agenda (chapter 6).
5. Sugar Research and Innovation Capacity
Sugarcane is a plantation crop, organized and managed predominantly in large production
units. Due to their size, sugar estates can afford to employ agricultural specialists to bring
advanced technical expertise to the enterprise. Also the sugar mills employ the necessary
technical specialists for chemical analysis and controlling the various factory processes. Allin-all, sugar companies with stakes in both sugarcane production and processing usually
employ a substantial cadre of trained technical specialists. However, the research capacity of
these in-company technical services (other than some adaptive trials and testing) is usually
rather limited.
A common phenomenon in many sugar-producing countries (often inherited from colonial
times) is for local sugar companies to organize and finance their technical services jointly.
Depending on the size of the sugar industry, this joining of forces allows them to move into
more advanced research activities for which they individually lack the capacity. Classic
examples of industry-based and funded sugar research institutes are the South Africa Sugar
Research Institute (SASRI), the Mauritius Sugar Industry Research Institute (MSIRI), the
Sugar Industry Research Institute of Jamaica (SIRI), and the West Indies Central Sugarcane
Breeding Station (WICSCBS). The latter is a regional entity.
Table 3 provides an overview of the sugar industry in the different SP countries, including
their sugar research capacity. In about half of the SP countries the sugar industry is
monopolized by just one public or private company that owns all the sugar mills. Such
companies often also own major sugar plantations, but do not necessarily control all
sugarcane production. Some of the production may come from independent smaller sugar
plantations, but increasingly also from smallholders who operate as outgrowers for the larger
plantations. Prices paid to independent sugarcane producers under such monopolistic
situations are a permanent cause for conflict. In many countries institutions have been created
to deal with this problem (like Sugar Boards and Authorities) and have been given the
authority to set a fair sugarcane price for both producers and processors. Nevertheless,
conflicts are still quite common and in particular about incomplete and delayed payment and
corruption.
Sugar research and innovation is foremost an in-company activity and particularly so in
countries with just one sugar company. Specialized, stand-alone sugar research institutes and
technical services only occur when there are multiple local sugar companies.4 However, the
balance between intramural and extramural technical capacity can differ quite a bit from
country to country. In some, like Mauritius, there is a long and strong tradition of
collaboration and so the industry is depending heavily on MSIRI for technical input, while in
4
The exception, Fiji, has only recently created a sugar research institute after complaints by sugar growers that
the Fiji Sugar Corporation was not doing enough.
other countries, like Mozambique, the technical collaboration between the sugar companies
has been relatively weak (or non-existent) and far less research and technical services are
undertaken jointly.
Table 3: Overview of the Sugar Industry and Sugar Research Capacity in the Sugar
Protocol Countries
Country
Barbados
Sugar companies
The sugar industry is owned by the
government, which has contracted Barbados
Agricultural Management Company
(BAMC) to manage it.
Belize
Belize Sugar Industries Ltd (BSI) and
Petrojam Ltd. are both privately owned, but
have been granted monopolies by the
government.
Société Agricole de Raffinage Industriel du
Sucre (SARIS-Congo) is owned by
SOMDIAA, a group of food processing
industries in various French-speaking
African countries.
Industry dominated by two companies:
Sucrivoire and Sucre Africain (SUCAF).
Congo, Republic
of
Côte d’Ivoire
Fiji
Fiji Sugar Corporation (FCS) holds a sugar
monopoly and is state owned.
Guyana
Guyana Sugar Corporation Inc.
(GUYSUCO) holds a sugar monopoly and is
state owned.
Seven mills (Frome, Monymusk, Bernard
Lodge, Appleton, Worthy Park, St. Thomas,
and Trelawny) are still in operation of which
at least three are expected to be closed
down. All mills are state-owned. Proposed
restructuring of the industry includes
privatization of the mills.
Some 8 sugar factories in operation: Busia
Sugar Company, Mumias Sugar Company,
Muhuroni Sugar Company, Nzoia Sugar
Company, Chemelil Sugar Company, South
Nyanza Sugar Company, West Kenya Sugar
Company, and Miwani Sugar Company.
Most companies are partly owned by the
government.
Industry dominated by two companies:
Siramamy Malagasy (SIRAMA) and
Sucrerie Complant de Madagascar
(SUCOMA)
Illovo Sugar (Malawi) Ltd. (previously a
government monopoly).
Jamaica
Kenya
Madagascar
Malawi
Sugar research
BAMC has an Agronomic Research and
Variety Testing Unit as well as a Sugar
Technology Research Unit. Barbados also
houses the West Indies Central Sugarcane
Breeding Station (WICSCBS), which has a
regional mandate.
BSI: R&D Unit
No specific information available.
Centre National de Recherche
Agronomique (CNRA): conducts contract
research for the two sugar companies
Sugar Research Institute of Fiji (SRIF),
established in 2005 as a tripartite
partnership between FCS, the Fiji
Sugarcane Growers Council and the
Government of Fiji. Previously the
responsibility for sugar research rested
with FSC.
GUYSUCO: Agricultural Research Centre
Jamaica Sugar Industry Authority: Sugar
Industry Research Institute (SIRI)
Kenyan Sugar Research Foundation
(KESREF), established in 2000, took over
all sugar research previously conducted by
the Kenyan Agricultural Research Institute
(KARI). This restructuring was the result
of an attempt to shift the full responsibility
(including financing) for sugar research
back to the industry.
Centre Malgache de la Canne et du Sucre
(CMCS)
Illovo Sugar (Malawi) Ltd: R&D unit
Country
Mauritius
Mozambique
St. Kitss & Nevis
Swaziland
Tanzania
Trinidad &
Tobago
Zambia
Zimbabwe
Sugar companies
As part of the adaptation strategy, the
milling capacity has been rationalized
significantly. Only four mills will stay in
operation, namely: Savannah, Rose Belle,
Mon Loisir, and Mon Desert Alma. The first
two mills are owned by the ‘Societe
Usiniere de Sud’ in which various
shareholders participate.
Industry comprises four privately owned
companies/mills: Maragra Mill (Illovo),
Mafambisse Mill (Tongaat-Hulett),
Marromue Mill (Sena Holdings Ltd), and
Xinavane Mill (Tongaat-Hulett). All four
mills are in foreign hands.
St. Kitts Sugar Manufacturing Corporation
(state owned): In the process of being closed
down.
Industry dominated by four companies:
Mhlume and Simunye (Royal Swaziland
Sugar Corporation), Tambankulu Estates
(Tongaat-Hulett), and Ubombo (Illovo).
Industry dominated by three companies: (i)
Kagera Sugar Company Ltd. (Sugar
Industries Ltd.); (ii) Killombero (Illovo);
and (iii) Mtibwa Sugar Estates Ltd
(Tanzania Sugar Industries).
Caroni Ltd. (state owned) has been
dismantled. Caroni’s sugar refining business
will continue as the Sugar Manufacturing
Company Ltd, processing imported raw
sugar.
Nkambala, owned by Zambia Sugar PLC /
Illovo, covers some 90% of the market.
Kafue (Consolidated Farming Ltd) covers
the remaining 10%.
Industry dominated by two plants: Triangle
Mill and Hippo Valley Estates. TongaatHulett, which already owned Triangle Mill,
has recently also taken over Hippo Valley
Estates.
Sugar research
Mauritius Sugar Industry Research
Institute (MSIRI) and the University of
Mauritius (several sugar-related
departments)
Centro de Promoção da Agricultura
(CEPAGRI) (formerly Instituto Nacional
de Açucar)
St. Kitts Sugar Manufacturing Corporation:
Agronomy and Research Department
Swaziland Sugar Association: Technical
Services.
Kibaha Sugarcane Research Institute
(Ministry of Agriculture) and the National
Sugar Institute. The latter focuses primarily
on training, but conducts some research as
well.
Nkambala depends, through its mother
company Illovo, on sugar research capacity
in South Africa.
Depend, through Tongaat-Hulett, on sugar
research capacity in South Africa.
A complicating factor in the case of Mozambique (and also in other African countries, like
Malawi, Swaziland, Zambia and Zimbabwe) is that the ownership of the sugar companies is
no longer exclusively national. In particular South African sugar companies nowadays own
quite a number of subsidiaries throughout southern Africa and rely heavily on the technology
base at home (i.e., SASRI and Sugar Milling Research Institute [SMRI]). Rather than
investing in building local sugar research capacity, these companies prefer to contract out
research to SASRI and SMRI. In the short run this gives them the best research results money
can buy. In the long run, however, this will keep the host countries dependent on imported
sugar technology. A national sugar research and innovation strategy may counterbalance such
dependence and prioritize those areas where building local capacity is most needed.
Characteristic for sugar research (in contrast with most agricultural research) is that it is
primarily organized and financed by the sugar industry itself. The monopolistic / oligopolistic
character of the industry makes that the commodity chain is usually relatively well-organized
(i.e., a few powerful players that can take the lead) and can be taxed easily to finance a public
good like sugar research (i.e., no free riders and low collection costs). This model seems to
work well as long as: (a) Ownership of the industry is predominantly national (foreign
companies have different loyalties -- see above); and (b) State ownership in the sugar industry
is not undermined by political interference.
A handicap of sugar research being financed within the industry is that at times that revenues
are low research will be affected as well. This is one of the big threats that sugar research in
SP countries is running at the moment.
6. Enhancing Sugar Productivity: An Innovation Agenda
The EU Sugar Reform forces the SP countries to push through major rationalizations within a
short period of time. The most dramatic ones that have been proposed is the complete close
down of the sugar industry in St Kitts & Nevis and a partial close down in Trinidad &
Tobago. In other countries, consolidation of milling capacity and elimination of marginal
sugarcane fields are being proposed as well. For those parts of the industry that intend to stay
in business, however, increased productivity (both at field and factory level) will be crucial.
In order to enhance the overall productivity of the sugarcane industry, three major innovation
clusters within the industry can be identified, namely: (1) Sugarcane breeding; (2)
Agricultural practices in sugarcane production; and (3) Sugarcane processing and products.
We will discuss each of these clusters in detail in the following three sections.
6.1 Sugarcane breeding
Sugarcane breeding is a well established practice in the sugarcane industry and has a long and
successful history. Leading sugarcane breeding centres among the SP countries are the West
Indies Sugarcane Central Breeding Station (based in Barbados, but servicing the whole
Caribbean), MSIRI (based in Mauritius), and indirectly SASRI (based in South Africa, but
servicing many neighbouring SP countries). Most of the funding for this breeding work is
coming from the local sugar industry. However, for breeding work done for third parties these
centres usually charge a fee or royalties. In particular many African countries lack local
sugarcane breeding programmes and hence their sugar industries rely on imported sugarcane
varieties. Their own involvement is usually limited to variety testing only.
For long, sugarcane breeding has been focusing primarily on high yields and high sucrose.
With the rapidly emerging interest in producing electricity out of bagasse (the waste left over
after the sugarcane has been milled), high fibre content has suddenly become a desirable
characteristic. While in the past low fibre was preferred, now the selection has started to move
in the opposite direction.
Electricity companies are only interested in a steady, year-round supply of electricity. In order
to get around this bottleneck, sugar companies are: (a) Installing generators that can work on
both bagasse and other sources of energy (i.e., oil, coal, or gas); and (b) Trying to lengthen the
sugarcane harvesting season. This has resulted in a demand for early-maturing, high-sucrose
sugarcane varieties. In this business model, sugar production is still the lead activity. By
adopting a business model in which energy production is leading and sugar a by-product, like
in the case of Barbados, breeders are looking for sugarcane varieties that can be harvested
year-round and are less concerned about the sucrose content.
In addition to these characteristics required for electricity production, breeding programmes
continue to emphasize disease resistance (such as to ratoon stunting disease, yellow spot and
yellow leaf syndrome) and improved agronomic characteristics such as rapid covering of the
inter-row, erectness, tolerance to drought and freezes, and optimal nutrient uptake (Glaz
2003).
Genetically modified (GM) sugarcane varieties are currently under development in various
countries, but most importantly in Australia and Brazil. They both have announced the
commercial introduction of GM sugarcane by 2011. However, for SP countries exporting to
the EU market, sugar from GM sugarcane may encounter problems of acceptance by
European and other consumers. Hence some caution of introducing GM sugarcane (and of
investing in the development of them) in these countries is warranted. GM sugarcane can
expect less resistance when it is used exclusively for non-food applications like the production
of bio-ethanol. Among the SP countries, only Mauritius has invested in a sugarcane
biotechnology programme to date.
A common problem in many sugar-producing countries is the relatively slow uptake of new
sugarcane varieties by sugarcane growers. While the standard recommendation is to replant
sugarcane fields every 6-8 years, many sugarcane growers (and in particular the smaller ones)
ratoon their sugarcane for a far longer period, sometimes for up to 20-30 years. Because
replanting is costly, a slowdown in the spread of new varieties is usually a sign that growers
are pessimistic about the sugar market prospects.
Greater investment in sugarcane breeding will not lead to immediate successes in sugarcane
fields. Developing a new variety takes time (13-15 years) and the uptake of improved
varieties tends to be slow due to high replanting costs. An intervention on the latter may help
sugarcane planters to increase their yields per hectare and reduce their costs per ton sugarcane
produced in the short run. In other words, they should reduce the backlog there is in adopting
improved sugarcane varieties. This is a one-time, short-term advance that can be made.
Speeding up the sugarcane breeding programmes in general is the longer-term solution – this
requires more funding as well as the adoption of better breeding techniques (e.g., molecular
markers).
6.2 Agricultural practices in sugarcane production
Principle areas of attention with regard to agricultural practices in sugarcane production are:
• Crop rotation. In most countries sugarcane is grown as a mono-crop without any crop
rotation. Research, however, has shown that long-term cultivation of sugarcane can lead
to changes in soil pH, loss of organic matter, and adverse changes in soil biota. Crop
rotation can reverse these developments and help increase productivity levels (Glaz
2003). Moreover, crop rotation and multi-cropping in sugarcane areas may lead to a
more ecologically sound use of the land and diminish the dependency of farmers on a
single crop for their income.
• Crop protection. The use of chemical pesticides and insecticides in sugarcane
production is quite common, although application levels seem to be relatively moderate
compared to some other crops. Nevertheless, the total costs of this chemical protection
are quite considerable in monetary terms as well as in terms of health risks and
environmental damage. Hence there is a permanent drive to develop cheaper
alternatives that have less negative externalities. In countries like Australia, India and
•
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South Africa the use of bio-pesticides and biological control is a major research topic.
Water management. Sugarcane is a relatively hardy tropical or sub-tropical crop, which
has been adapted to grow both in high rainfall areas and in desert conditions. In the
latter situation it is entirely dependent on irrigation. Often the volume of water available
determines the area that can be planted with sugarcane. Hence improving the irrigation
efficiency is high on the research and innovation agenda in many sugarcane growing
areas. Too much water can also constitute a problem (both in irrigated and rain-fed
production) and hence the importance of adequate drainage.
Soil management. Important aspects of soil management in sugarcane production are
maintaining soil fertility, avoiding soil compaction and reducing the incidence of soil
erosion. The latter is in particular a problem in hilly areas and does not only affect the
soil quality of the sugarcane fields, but also creates huge negative externalities
downstream as rivers and lakes get filled up with sediment.
Nutrient management. Nitrogen and phosphorus are crucial nutrients for an adequate
development of sugarcane, while at the same time they can cause environmental
pollution when not adequately managed. Reported improved management practices are
the re-use of trash, the application of micro-organisms, and the optimization of nutrient
application by utilization of spectroscopy tools for assessing nutrient status in the cane
in real time and adapting the management practices accordingly (Glaz 2003).
Mechanization. The introduction of mechanized harvesting is usually steered by costbenefit considerations. In countries where labour is relatively cheap and capital
expensive, harvesting is still done predominantly by hand. Topographic characteristics
also influence the choice for a human cutter instead of machinery. Most of the machines
used by sugarcane producers have been developed by the private agricultural machinery
industry. The role of sugarcane research has usually been limited to looking at how best
machinery can be used in the field and what type of adjustments are needed (e.g., the
optimal width between sugarcane rows). Innovation in this domain is taking place
especially in Brazil and Australia (Ridge 2003). New developments focus on refinement
of cane transport equipment, harvesting machinery, trash management to optimize
nutrient application, and of cutting for replanting.
Burning of sugarcane. Burning of sugarcane prior to harvesting is still a common
practice in many countries. Increasingly, however, this practice is under attack (and
some countries have introduced legislation that forbid this practice) because the smoke
it causes is a health hazard and causes environmental pollution. In addition, there is
evidence that burning often negatively affects the quality of the sugarcane. Currently
research is taking place to further optimize the use of the trash either for energy
cogeneration or in the field as a natural fertilizer.
Optimization Models and Geographic Information Systems. Better understanding of
sugarcane growth has been brought upon by the use of models. APSIM-Sugarcane and
CANEGROW are models successfully used for estimating yields and making irrigation
decisions not only in Australia and South Africa, were they were developed but also in
other countries like Mauritius. Successful application of GIS tools has been reported in
Argentina, Cuba and Thailand (Glaz 2003).
So far, we have discussed agricultural practices in sugarcane production without considering
the characteristics of the farming households involved. Traditionally, sugarcane has been very
much a plantation crop, grown on large estates. Increasingly, however, smallholder sugarcane
growers (between 0.5 and 10 ha) are entering the scene. In particular in new sugarcane
growing areas, smallholder settlements are quite popular. However, the yields per hectare of
smallholder sugar growers tend to be substantially lower (10-20%) than that of neighbouring
sugar estates. The exact reasons for this difference are not clear, nor the interventions needed
in order to eliminate this gap. Lack of adequate technology transfer mechanisms is one of the
factors that may come into play.
6.3 Sugarcane processing and by-products
Sugar cost price differences are not only determined by the efficiency of sugarcane
production, but also by that of sugarcane processing. Factory efficiency is determined by both
the quality of the plant infrastructure as well as by its management. Although modern plants
are usually a lot more efficient than older ones, the quality of the management of the plant
(process and quality control, logistics, administration, etc.) still can make a major difference
in the efficiency of the plant. For example, the quality of raw sugar from many SP countries
tends to be relatively poor, resulting in price penalties in the EU market. This may not be such
a problem when you receive a high, protected sugar price, but at a substantial lower price such
penalties are felt a lot more. Better quality control (including paying farmers for the quality of
their sugarcane rather than sheer volume) may reduce such penalties considerably.
Energy saving and co-generation of electricity at the plant may also result in major cost
savings. However, such interventions often require important modifications to the existing
facilities. Sugar mills are also increasingly under scrutiny for how they manage their water
use and waste streams due to tightening environmental standards (Blackwell 2002).
The most important recent development regarding sugarcane processing efficiency has been
the better utilization of waste products. Sugarcane residues are produced either as post-harvest
residues or as the result of its processing into final products. Harvesting the sugarcane will
leave as by-product the trash, i.e. tops, dry and green leaves, which are usually burned in the
fields directly after harvesting. Processing into sugar will yield residues, such as bagasse
(solid resulting after juice extraction), cachaza (material remaining after cleaning the juice
which is a mix of juice, coagulated proteins and minerals), molasses (thick syrup obtained in
the preparation sugar by repeated crystallization) and water (Pabon Pereira, et al 2006).
Bagasse, for example, is rich in energy and produced in large quantities. Rather than burning
it very inefficiently in order to get rid of the waste, the aim now is to recover as much energy
as possible and sell the surplus in the form of electricity to the national grid. This requires
investment in better boilers as well as in generators. National electricity companies are
usually only interested in a steady, year-round supply of electricity. The answer to this
challenge has been the introduction of generators that can work on both bagasse and other
sources of energy (gas, coal, biomass, etc.). Still, in quite a number of countries national
electricity companies seem to be hesitant of adopting the idea of buying electricity from sugar
companies or only offer a very low price (e.g., South Africa). The technology is there, but
many institutional and managerial hurdles still need to be taken. Nevertheless, in most
national adaptation strategies co-generation of electricity is included as one of the more
important measures to be pursued.
Another major waste product of sugar production is molasses, which is rich in sugar and can
be used in many different ways, such as the production of ethanol, glycerol, fructose syrups,
solvents, organic acids, amino-acids, and vitamins. It is nowadays often also directly used as
animal feed and fertilizer. Bio-ethanol can be produced from molasses or straight out of sugar
juice, but the latter is only an interesting economic proposition when sugarcane can be
produced very cheaply and has no alternative than to be sold at the low world market price
(e.g., Brazil and Australia). Bagasse can also be used to produce bio-ethanol, but the
conversion process is more demanding and still in development.
For sugar industries having access to markets that pay sugar prices that are substantially
higher than the world market price, producing sugar as the primary product rather than bioethanol is the more attractive proposition at present. However, this may change when the oil
price continues to rise and hence pushing the price of bio-ethanol up. Most national adaptation
strategies, however, propose entering the bio-ethanol market by producing bio-ethanol on the
basis of molasses. This requires investment in bio-ethanol plants. Whether or not this is an
attractive economic proposition all depends on the oil price and local government policies
regarding renewable energy and taxation as well as on the production costs associated with
the sugarcane production itself since biomass costs play a large role in the economics of the
bio-ethanol industry.
While in most national adaptation strategies the production of electricity and bio-ethanol are
conceptualized as important by-products of the sugar industry, the national adaptation strategy
of Barbados clearly adopts a different business model for the sugar industry. In this model, the
production of electricity constitutes the primary source of income, while ethanol and sugar
production come at second plan.5 Although there are doubts regarding the feasibility of this
business model at present (in particular because of the high cost environment of Barbados), it
may give us a hint of how the sugarcane industry may transform itself into a renewable
energy industry in the long run. It all depends on what the oil price will do and what type of
alternative (and thus competing) renewable sources of energy may emerge.
7. Conclusions
Competition is the main driver for innovation to take place in any industry, including the
sugar industry. In addition, two other major factors are driving innovation in the sugar
industry in SP countries at the moment, namely:
• Policy-driven changes in market opportunities: The EU Sugar Reform and the EBA
Agreement, both being phased in at the moment, are affecting the opportunities of the
SP countries on the EU sugar market. The EU price reduction will expose SP countries
to stiffer competition (although still relatively protected). However, not all SP countries
will be affected equally. The impact depends on the SP quota held (which is based on
historical rights), the overall competitiveness of the local sugar industry, and on whether
the country falls under the EBA agreement or not. While in some SP countries sugar
production will contract, in others (in particular those with EBA status and a
competitive advantage) it will expand. Mobilizing the necessary capital for such
expansion will constitute an important bottleneck.
• High oil prices and a strongly increased interest in renewable energy have placed the
spotlights on sugarcane as the most efficient crop to produce bio-energy from at the
moment. Economically, the most interesting opportunity at the moment for SP countries
is to use sugarcane waste to co-generate electricity and bio-ethanol. It is a business
model in which energy production is a by-product from sugar production. The pace at
5
The projected revenues after the reforms of the sugar industry in Mauritius are 75% sugar, 15% electricity, 7%
ethanol, and 3% carbon credits. In the case of Barbados, the projected, post-reform revenues are 50% electricity,
25% ethanol and 25% sugar.
which this business model will be adopted depends on the availability of capital and
technical know-how in the sugar industry in SP countries. A possible next step is to
make energy production the core business of the sugarcane industry and sugar a mere
by-product. However, this is still a hotly debated scenario in terms of environmental
soundness (some argue that more energy goes into the production of sugarcane than we
get out of it and substituting one type of pollution for another) and moral acceptability
(energy production competing with food production).
Although on-going and planned sugarcane research activities promise interesting
improvements in the future efficiency of the sugar industry, most of them will come on board
too late to save all the high-cost sugar producers in SP countries from bankruptcy. Short-run
solutions have to be found more in the sphere of catching up on adopting existing
technologies. Subsidies to improve sugarcane fields, to speed up the adoption of new
sugarcane varieties, and to promote better agricultural practices most likely will result in more
immediate improvements in sugarcane yields.
Also at the factory level immediate gains can be made by catching up on existing technologies
and managerial practices. As experience in South Africa has shown, benchmarking of sugar
mills and sugar industry operations is a useful tool of identifying those areas that can be
improved easily and quickly. The International Sugar Organization (ISO) as well as private
consultancy firms offer international benchmarking services.
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